This copy is for your personal non-commercial use only. To order presentation-ready copies of Toronto Star content for distribution to colleagues, clients or customers, or inquire about permissions/licensing, please go to: www.TorontoStarReprints.com

The low interest rates of the past five years have punished anyone with money to save, offering such pitiful returns that after inflation these nest eggs have been shrinking.

You can take that kind of thing for a year or two, but the cumulative wear and tear of even modest inflation is a killer. After five years, a hardly noticeable 2 per cent a year has eroded your purchasing power by 10 per cent.

That sort of math has sent many skittish investors back to the stock market, even as they recall the market collapse of 2008 and 2009. If they have been investing in shares of Canada’s biggest enterprises, including the banks, telecom companies and utilities, they have been rewarded. As the economy has rebounded, share prices are higher and companies have been increasing their dividends to reward their shareholders.

Most public companies set aside fixed portions of profits for dividends and as the companies have become more confident about the outlook, the payments have been on the rise. In 2011, 41 per cent of TSX-listed companies increased dividends, rising to 49 per cent in 2012 and 54 per cent last year.

“You can take a zero rate of return on a money market fund for a year, but after three, four and five years you notice it,” says Don Newman, a mutual fund portfolio manager with Fidelity Investments in Toronto. “With money in the bank getting nothing, the answer is buy good companies, stay the course and you’ll do fine,” he says.

Fidelity is Canada’s fifth largest fund company and Newman manages their Dividend and Dividend Plus funds with combined assets of $4.8 billion.

He says if trends continue, shareholders can expect more increases in 2014, adding that investing in stocks can be done by taking moderate risk. Stick with large, financially-stable companies that are dominant in their industry, have a history of profitability and a record of giving something back to shareholders. They will thrive through good and bad times.

It is also true that even with ups and downs, stocks outperform bonds. The S&P 500 — a measure of performance for large U.S. companies — registered an average annual total return of 7.4 per cent between 2002 and 2013, according to Investopedia. Bonds averaged 4.55 per cent.

Short-term rates seem likely to remain low, so there’s not much relief in sight. Bank of Canada governor Stephen Poloz said in an interview on CBC’s The Lang and O'Leary Exchange last week that he expects long-term rates to rise this summer because the U.S. Federal Reserve is reducing its $85 billion a month of bond purchases. This will put pressure on longer Canadian bond yields which will affect long-term mortgages, but not short-term rates.

So if the economy continues to roll along and the trend in dividend increases continues, we might expect another year of rewards for shareholders. Here’s a snapshot of three less volatile sectors.

Banks: The Big 5 pay out between 40 and 50 per cent of profit as dividends. In 2013, most raised dividends twice. Royal Bank’s rose 11.7 per cent, Scotiabank by 8.8 per cent and TD, 10.3 per cent, as examples. Analysts see a 7-to-8 per cent increase this year.

Telecoms: BCE has increased its dividend nine times since 2008, with common shares currently yielding 5.1 per cent. Rival Telus increased its payment 13.5 per cent in 2013 and said in May it is aiming for two increases a year through 2016 with a growth target of 10 per cent each year.

Utilities: Pipeline firm Enbridge has grown its payments by an average 12 per cent a year in each of the past 10 years. TransCanada Corp. has increased dividends each year in the past 10 at a 5.5 per cent average clip.

That’s not a bad track record at a time when money under the mattress is yielding about as much as it is in a savings account.

More from the Toronto Star & Partners

LOADING

Copyright owned or licensed by Toronto Star Newspapers Limited. All rights reserved. Republication or distribution of this content is expressly prohibited without the prior written consent of Toronto Star Newspapers Limited and/or its licensors. To order copies of Toronto Star articles, please go to: www.TorontoStarReprints.com